Successful business stories: Real estate exchange investments

Successful business stories: Real estate exchange investments

If you wonder what profitable business you should approach, you must know that the Internal Revenue Code allows tax deferred investments under one of its sections. This means businesspersons can find alternatives to traditional ones, which are under strict income tax laws. However, making real estate exchange 1031 investments are not under those restrictions. This allows you as an investor to find profitable ways for developing your business. However, if not sure how can you profit from the 1031 Section, below are some ideas you might find useful.

Exchange house Red and green house symbol with arrow on white background

1. Like-kind property exchange

This section allows investors to swap commercial properties of similar values without paying taxes. From apartment buildings, rentals, farms, retail centers, land or whatever property you might think about, they can all be swapped for another of the same market value. As you can notice, the notion of “like-kind” is quite permissive and you can easily switch your activity domain quite easily. If you don’t find profitable anymore the field in which you currently activate in, you might find useful an easy option to operate an exchange.

2. Make profitable investments

If you own a raw terrain, for example and it doesn’t bring you any profit, you can swap it for a property with a higher potential. Either you can open a profitable business in it, accordingly to your main field of activity, either you continuously swap it for properties that mean low levels of management. Rental buildings are a good example from the last category.

3. You must find competent third party

Such investments, although profitable, they are not as easy to make, as they seem. You must have a generous portfolio of potential properties you might find profitable. However, specialists in the field can help you in this matter. They have a lot of contacts consisting in buyers and sellers and the properties are from various types. Moreover, they can help you in the matter of managing the cash until you find an appropriate property for a swap. Why this? Because as a part of the exchange, in order to remain a tax deferred investment, you must not be in the possession of the money at any point. This is why you need a third party for this purpose.

4. Potential amounts of remaining money will be a subject of income taxes

If your property has a higher value than the replacement property and you agree with the owner to also pay an additional amount of money, that money will automatically become taxable. The rule in these investments is that there will not be any remaining money from the exchange. If you break it, what isn’t a part of the exchange, namely the money, will become taxable.

Here are some essentials you must know in order to become an expert in real estate exchange investments. As you can see, there are not many restrictions. However, you must follow some rules for a good outcome.